R&D tax credits are a government incentive aimed at helping UK businesses by encouraging and rewarding innovation.
Research and development as intended for tax purposes doesn’t always take place in laboratories with scientists in white coats.
It is estimated that around nine out of ten eligible small and medium businesses are failing to claim for eligible R&D expenditure.
Innovation comes in many different forms, for example a restaurant developing a new app linked to its takeaway service or a manufacturer pushing boundaries on production techniques.
It is out experience that many businesses are put off by the term R&D and immediately believe they don’t qualify.
R&D tax relief provides up to a 230% total deduction from taxable profits meaning the tax savings can very quickly be substantial for entrepreneurial businesses.
When we sit down to discuss the interesting things many of our clients have done we often learn of the ways small businesses are pushing the boundaries of innovation.
Companies are missing out on valuable tax relief which can very quickly add up to tens of thousands of pounds.
The relief allows a company to deduct an extra 130% of qualifying costs from its annual taxable profit to create a total deduction of 230%.
For example £2.30 of tax relief is achieved for every £1 of qualifying expenditure and it is published that the average R&D claim generates over £55,000 for small and medium sized businesses
Qualifying expenditure can include materials, wages, overheads, and even subcontractors.
Claims can be made for the last two years and HMRC usually issue their refunds within 6-8 weeks of the claim being made
It is often worth a quick ten minute conversation to understand if you could qualify for the relief. The potential result from making a claim could make a significant financial impact on the business.
In our experience many business owners are surprised to learn of the qualifying criteria and underestimate the amount of R&D that is inherent in the work they do.
We have some fantastic small businesses here in the North West who specialise in solving problems for their customers and clients. More often that not this problem solving leads directly to research and development.
Because we also work with our clients on their accounts we are often well placed to maximise any claim.
NRB specialise in assisting to identify eligible R&D projects, highlighting expenditure for the claim, and preparing the claim document for HMRC. We also have experience in defending claims should HMRC make enquiries into the claim.
Does R&D relate to my business? Four Key Questions.
What to ask yourself as you consider an R&D claim.
What is the scientific or technological advance?
Rather than stating the product, process or functionality being developed, consider what advance is being sought. Focus your attention on how you are looking to develop something that is not readily available.
What scientific or technological uncertainties were encountered?
Uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, isn’t readily available or deducible by a component professional working in the field.
How and when were the uncertainties overcome
Remember that the commercial failure of a product does not mean that R&D wasn’t present. And if the scientific uncertainties weren’t overcome, that can still mean that the work to address the uncertainties can be R&D.
Why wasn’t the knowledge being sought readily deducible by competent professionals?
It might be publicly known that other have tried to resolve the uncertainties and failed. Or maybe other have resolved uncertainties, but precisely how it was done isn’t in the public domain. In either case a valid technological uncertainty can still exist.
Our team have experience handling claims of all sizes for small and medium sized businesses
Our client is a specialsit lifting company delivering bespoke lifting services, not widely available in the market place, to its client base. The company were not previously aware that their work qualified for R&D tax relief but it was clear to our experts that the company was clearly pushing the boundaries of the existing practices.
Our team worked closely with the company’s internal finance team and engineers to develop and accurate and prudent claim document which resulted in a tax reclaim of almost £80,000.
In total the claim document was over 5,000 words containing photographs and technical drawings to substantiate the claim in allegience with the specific tax legislation as published by HMRC. It is our hope that structuring the claim in this manner reduces the work required from the client, and also makes it easier for the HMRC inspector to approve the claim.
The client created bespoke glass pieces for high end client. Many of the pieces were included on million pound yachts with clients always looking to push the boundaries of hand made glass design and manufacture.
Our team worked with the client to pull together a prudent and accurate R&D tax claim which over the last three years has resulted in over £100,000 of tax being recovered.
Our client works predominantly in the scrap metal industry and did not believe they completed any R&D work. Upon investigation it was clear that they were developing a green, recycling element to their scrap recycling.
This service meant that a number of previously scrap materials were able to be re-used and recycled. This took a significant amount of staff and time and costs to be able to research and develop the service to a point where it was available for clients.
In total our claim recovered over £110,000 of tax for the client.
Our client is a specilist in the relocations industry and their management team made a conscious decision to research and develop a new service line which was not commonly available in the market place.
This meant the business incurred costs and time to develop the new service line to ensure the appropriate accreditions could be attained to allow the new service to be a viable business for potential customers in the market.
Our team worked closely with the management of the business to extract the key details of the claim, the costs incurred, and specifically how the R&D criteria were met from the company’s activities.
The company was loss making in the period due to the development of this service line and in total the claim value was over £90,000 of tax recovered for the client, a vital help for a developing business.
The company in question was involved in helping leading blue chip companies with their design and implementation of control solutions. They had previously been advised by a specialist R&D claims firm, who had already made a claim.
Our team were able to liaise with management to gain an deeper understanding of the activities the company completed and were able to enhance further the existing claim whilst staying well within the remit of the R&D tax legislation.
As our specialists are also fully qualified accountants we believe this knowledge aligned with the specialist engineering skills of the client were the key to maximising this claim.
In total our team recovered over £140,000 of corporation tax for the client.
These are just a few of the claims our team has handled. To find out more if you’re eligible for a claim contact one of our specialists.
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